MULTIPLE CHOICE. Choose the one alternative that best completes the statement or

Question

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Irving Fisher took the view that the institutional features of the economy which affect velocity over time so that velocity will be fairly B) rapidly; erratic in the short run. change A) slowly; stable rapidly; stable D) slowly; erratic 2) 2) According to the quantity theory of money demand A) an increase in money will cause the demand for money to fall. B) an increase in interest rates will cause the demand for money to fall. C a decrease in interest rates will cause the demand for money to increase. D) interest rates have no effect on the demand for money. 3) The quantity theory of inflation indicates that the inflation rate equals A) the level of the money supply minus the level of aggregate output. B) the growth rate of the money supply plus the growth rate of aggregate output. C the level of the money supply plus the level of aggregate output D) the growth rate of the money supply minus the growth rate of aggregate output 4) Methods of finanding government spending are described by an expression called the government4 budget constraint, which states the following A) DEFICIT= (G-T) MBABONDS. 9 DEFICIT = (G-T-&BONDS-dMB.; B) DEFICIT= (G . T-ANB + &BONDS.; D) DEFICIT = (G-T)-ANB-ABONDS. 5) This method of financing government spending is frequently called printing money because 5) high-powered money (the monetary base) is created in the process. A) financing government spending through a Treasury sale of bonds that are then purchased by the Fed B) financing government spending by selling bonds to the public, which pays for the bonds with checks C) financing government spending with taxes D) financing government spending by selling bonds to the public, which pays for the bonds with currency 6) The Keynesian theory of money demand emphasizes the importance of 6) A) interest rates on the demand for money B) a constant velocity C) irrational behavior on the part of some economic agents D) expectations. 7) Of the three motives for holding money suggested by Keynes, which did he believe to be the most 7) sensitive to interest rates? A) the speculative motive ) the transactions motive B) the precautionary motive D) the altruistic motive 8) Keynes's model of the demand for money suggests that velocity is related to 8) A) positively; interest rates O) positively; stock prices B) negatively; interest rates D) positively; bond values

Explanation / Answer

Answer:

1. option A. Slowly , stable

2 option D. Interest rates have no impact on demand for money. As, Md/P = k x Y

3. Option D: As The quantity theory of inflation indicates that the inflation rate equals the growth rate of the money supply minus the growth rate of aggregate output.

4.The government budget deficit should be equal to the sum of the change in the monetary base and
the change in government bonds held by the public. so, option B.

5. Option A: The finance of government spending through a Treasury sale of bonds that are then
purchased by the Fed.

6. Option A: The Keynesian theory of money demand emphasizes the importance of interest rates on the demand for money.

7. Of the three motives for holding money suggested by Keynes, he believe speculative motive to be the most sensitive to interest rates. So, Option A.

8. Option A : Positively, Interest rates

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